15% arises through the extraction of oil Determine which part of the removal cost should be initially recognised as the cost of the oil rig.
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Adoding Group operates an offshore oilfield where its 20-year licensing agreement requires it to remove the oil rig at the end of production and restore the seabed. Costs of removal of the oil rig and restoration of the seabed include:
• 75% relates to damage caused by building the oil rig
• 10% relates to damage caused by regular maintenance of the oil rig
• 15% arises through the extraction of oil
Determine which part of the removal cost should be initially recognised as the cost of the oil rig.
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- Power to a remote transmitting station is provided by a Diesel-electriegenerator unit. The original cost of the unit is P65,000. It costs P2,000 to ship the unit to the job site. An additional cost of P3,000 was incurred for installation, (a) Determine, the annual depreciation cost by the straight line method, if the unit has an expected life of 10 years. The salvage value of the unit at the end of its life was estimated at P5,000. (b) Determine the annual depreciation cost by the sinking fund method. Assume that the annualchargefor depreciation was deposited in a fund drawing compound interest at the rate of 5%Case Property Plant & Equipment Adoding Group operates an offshore oilfield where its 20-year licensing agreement requires it to remove the oil rig at the end of production and restore the seabed. Costs of removal of the oil rig and restoration of the seabed include: 75% relates to damage caused by building the oil rig 10% relates to damage caused by regular maintenance of the oil rig 15% arises through the extraction of oil Determine which part of the removal cost should be initially recognised as the cost of the oil rig.On 1 October 20X3 Xplorer commenced drilling for oil from an undersea oilfield. The extraction of oil causes damage to the seabed which has a restorative cost (ignore discounting) of $10,000 per million barrels of oil extracted. Xplorer extracted 250 million barrels in the year ended 30 September 20X4. Xplorer is also required to dismantle the drilling equipment at the end of its five year licence. This has an estimated cost of $30 million on 30 September 20X8. Xplorer's cost of capital is 8% per annum and $1 has a present value of 68 cents in five years' time. What is the total provision (extraction plus dismantling) which Xplorer would report in its statement of financial position as at 30 September 20X4 in respect of its oil operations?
- Cooler Company acquired a tract of land containing an extractable natural resource. Cooler is required by the purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 5,000,000 tons and that the land will have of P1,000,000 after restoration. Relevant cost information as follows: Land P 9,000,000 Estimated restoration costs 1,500,000 If Cooler maintains no inventories of extracted material, what should be the depletion expense per ton of extracted material?Company XYZ extracts oil and accordingly owns a drilling platform in theArabian Gulf. By the end of the platform’s useful life, the firm is required toremove and dismantle it. Thus, the firm accounts for the removal anddismantling costs, which are depreciated over the platform’s useful life.Using the information below, you are asked to investigate whether therehas been an impairment of the platform: The carrying amount of the platform in the statement of financialposition is £5m.The company received an offer of £4.8m for the platform from aneighbouring competitor. This potential bidder would take theresponsibility of dismantling and removing the platform(including the costs) at the end of the asset’s life. The present value of the estimated cash flows from theplatform’s continued use is £5.4m, excluding any dismantlingcosts.The carrying value in XYZ’s balance sheet for the provision fordismantling and extraction is £0.8m. Describe in detail what is meant by the impairment of assets.…Power to a remote transmitting station is provided by a Diesel-generator unit. The original cost of the unit is 65,000. It costs 2,000 to ship the unit to the job site. An additional cost of 3,000 was incurred for installation. (a) Determine the annual depreciation cost by the sinking fund method, if the unit has an expected life of 10 years. The salvage value of the unit at the end of its life was estimated at 5000. (b) Determine the annual depreciation cost by the sinking fund method. Assume that the annual charge for depreciation was deposited in a fund drawing compound interest at the rate of 5%.
- ABC Corporation makes it a policy that for any new equipment purchased, the annual depreciation cost should not exceed 20% of the first cost at any time with no salvage value. Determine the length of service life necessary if the depreciation used is the SYD method.Break Free Corporation purchased a second-hand polishing machine. The entity incurred the following costs: Agreed price paid to the vendor - 8,000,000 Dismantling cost to bring the machine to its location - 400,000 Transportation charges to the entity’s factory - 350,000 Refurbishment cost prior to installation - 175,000 Assembly and Installation cost - 125,000 I. What is the cost of the second-hand machine? 8,875,000 9,050,000 8,125,000 8,000,000 II. Assume that the residual value of the machine is P50,000 with the following estimated useful life: Year - 5 years Service Hours - 600,000 hours Output - 1,500,000 units Assume further that on its first year the machine was used in operations for 150,000 hours. How much depreciation expense should be recorded by Break Free? 2,100,000 2,250,000 1,950,000 1,987,500 III. What is the depreciation rate per hour? 13 13.25 14 15 IV. Assume that on its first year the machine produced 320,000 units. How much depreciation…PUP CAF Mining Company purchased a tract of land containing mineral resources for P54,000,000. The purchase contract contained a provision that PUP CAF is required to restore the land suitable for factory use after it has extracted the mineral resource. Geological survey has indicated that 2,400,000 tons of ore could be extracted. The property has an estimated salvage value of P6,000,000 after the ore has been extracted and the land is restored. The estimated cost of restoration and geological survey is P7,200,000 which is the present value at the date of acquisition. Assuming that PUP CAF does not maintain inventories of extracted ores, how much should be charged to depletion expense per ton of extracted mineral ore?
- Break Free Corporation purchased a second-hand polishing machine. The entity incurred the following costs: Agreed price paid to the vendor - 8,000,000 Dismantling cost to bring the machine to its location - 400,000 Transportation charges to the entity’s factory - 350,000 Refurbishment cost prior to installation - 175,000 Assembly and Installation cost - 125,000 I. What is the cost of the second-hand machine? 8,875,000 9,050,000 8,125,000 8,000,000 Assume that the residual value of the machine is P50,000 with the following estimated useful life: Year - 5 years Service Hours - 600,000 hours Output - 1,500,000 units II. Assume further that on its first year the machine was used in operations for 150,000 hours. How much depreciation expense should be recorded by Break Free? 2,100,000 2,250,000 1,950,000 1,987,500 III. What is the depreciation rate per hour? 13 13.25 14 15 IV. Assume that on its first year the machine produced 320,000 units. How much depreciation expense…Clean Company acquired a tract of land containing an extractable natural resource. Clean is required by its purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 2,000,000 tons, and that the land will have a value of $1,000,000 after restoration. Relevant cost information follows: Land $7,500,000 Estimated restoration costs 1,500,000 If Clean maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material? Oa. $4.00 Ob. $3.20 Oc. $2.60 d. $3.00Sparkle Company acquired a tract of land containing an extractable mineral resource. Sparkle is required by its purchase contract to restore the land to a condition suitable for recreational use after it has extracted the mineral resource. Geological surveys estimate that the recoverable reserves will be 2,000,000 tons, and that the land will have a value of $1,200,000 after restoration. Relevant cost information follows: Land $9,000,000 Estimated restoration costs 1,800,000 If Sparkle maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material? $Answer?